US Fiscal: A Deal Now, Rather than 2021

Published on October 20, 2020

Last weekend, Speaker of the House Nancy Pelosi set the close of business today, Tuesday, as the deadline by which to strike a Phase IV fiscal stimulus deal with Treasury Secretary Steven Mnuchin and President Donald Trump.

*** Left unsaid, we believe there is a slim to zero possibility that a bipartisan fiscal stimulus deal can be negotiated this year if a deal is not clinched before November 3. A deal will therefore indeed have to be struck now, even if the drafting and legislative process pushes passage into the post-November 3 “lame duck” session of Congress, or the prospects for additional stimulus will have to be put on ice until after a new Congress and presidential term on January 20, 2021. ***

*** But punting to 2021 is far from a risk-free option, and sources close to the negotiating process believe Speaker Pelosi has a very strong incentive to come to an agreement with Secretary Mnuchin today or this week and will do so. White House officials, more deeply embroiled in the bitter election battles, are a bit more skeptical that she will agree to any deal before November 3. ***

*** Meanwhile, in this most sensitive stage of negotiations, the Treasury Secretary is, of all places, in the Middle East. Rumors are that while conducting signing ceremonies in the Emirates and Israel, Mnuchin may also be quietly paving the way for a foreign policy “October surprise” peace deal to be announced, before the elections, between Israel and Saudi Arabia. ***

Either way, Mnuchin will, of course, call in to the Speaker to talk all things fiscal at 3 p.m. today.

Late May Be Just Right

Administration officials point out that Pelosi’s deadline coincides pretty much with their own deadline for striking a deal before the elections.

In addition to drafting and legislating challenges, they note, it would take a couple of weeks to give the IRS enough time to get the $1,200 EIPs (Economic Impact Payments) out the door to the people that are eligible before the elections, albeit that process could be tightened up by a day or two.

Republican sources note that while it would preclude getting checks out before November 3, today’s deadline for a deal could in theory be extended right up to the middle of next week while the Senate remains in last-minute session for a floor vote on the confirmation of Judge Amy Coney Barrett to the Supreme Court.

But economists have made the case to President Trump for some time now that it is already far too late for another round of stimulus – or as the White House prefers to call it, an “economic support package” — to impact the economy in any meaningful way that would affect the elections outcome, even as the political credit for passing a deal could remain substantial.

Those political realities, and President Trump’s obvious eagerness to press the Senate to accept as big a headline spending number as needed to grease the wheels with the Democrats, leave the door wide open for Pelosi to come to an agreement today with Mnuchin and the White House.

And to that effect, this week’s Senate vote on a “skinny,” targeted deal as pressed by GOP Majority Leader Mitch McConnell is far from the meaningless gesture it is generally presumed to be.

The Implicit Senate Threat

Even if symbolic and guaranteed to go down in defeat by Senate Minority Leader Chuck Schumer, McConnell’s attempt again at a pair of skinny deal votes we are told serves also as an implicit reminder that the upper chamber of Congress may not be as easy sailing for a potential democratic administration as widely assumed.

First and foremost, despite the current polling, there is no guarantee the Senate will flip Democratic Blue, and if as now widely expected it does, it will be most likely with the very slimmest of majorities. With McConnell increasingly likely to retain his Kentucky seat, even if as minority leader, that means the potential failure to secure any deal now could meet resistance in the future and end up a career capping mistake of epic proportions for the Speaker – who is known for her negotiating savvy and is not wont to make such mistakes.

As it stands, a House-led agreement would almost certainly have the full support of Senate Democrats, and would thus need only 13 Republican Senators, not the full 60, to be put to a vote (and just 51 to pass).

And it is now becoming increasingly clear, as we have long contended but missed by most all Washington reporters, that there is a narrow window in which McConnell would invoke cloture and allow a floor vote on a Trump-Pelosi deal that would come almost all the way to the Democrats’ $2.2 trillion spending ask.

Republicans we have expected would then be allowed to “vote their conscience” and not be “whipped” into a yes vote, and sources have suggested that some Senators might, even if unlikely, move to allow a floor vote even if they could then afford to cast a No vote on the actual legislation.

But that sudden fiscal largesse will be sure to disappear under a new president. And even if Democrats sweep and pass that massive expected spending bill markets seem to already have fast forwarded to it would come at least a full three months later than taking the proverbial $ 2 trillion “bird in the hand” today.

Which puts the heat squarely back on the Speaker, already feeling pressure from her caucus, including, even, from stalwart liberal allies like fellow Californian Ro Khanna, who co-chaired Senator Bernie Sanders’ presidential campaign, to strike a deal.

The Last Major Negotiating Hurdle

And it did not go unnoticed that the spokesman for Speaker Pelosi struck a cautiously optimistic tone last night in pointing to some narrowing, at least, in areas of disagreement between the two sides.

Beyond haggling over the headline numbers, both sides have complained for weeks about “poison pill” provisions in the other side’s proposals. For Republicans, that included, for example, Democratic proposals for the funding for multi-employer pension plans, or $750 million for urban projects seen to be directed largely at traditional blue constituencies. But most of that can be brushed over where there is a will.

The biggest nut to be cracked remains over how to allocate state and local funding. Regarding size, truth be told, the White House, from what we understand, has moved well over its $300 billion proposal and come very close to the $436 billion ask of the Democrats.

The sticking point appears is whether to allocate the state and local funding essentially “by need,” which Republicans believe would leave the door wide open for funds to be directed heavily towards “bailing out” those blue states that have driven their finances and pension plans to the brink, or by another metric such as population size.

But even under the latter methodology, it would ensure that California and New York, for example, receive hefty allocations of federal assistance.

A Trump Foreign Policy October Surprise?

Meanwhile, Treasury Secretary Mnuchin has scooted off to a Middle East trip, curiously, just as fiscal negotiations with Pelosi approach their triple witching hour.

We have heard rumors, albeit unsubstantiated, that Mnuchin may be on a mission to pave the way for a peace deal between Israel and Saudi Arabia to cap the UAE and Bahrain peace deals, before the elections and end of President Trump’s term.

Saudi Crown Prince Mohammad bin Salman is well-served to be leery of a potential new US administration that almost by definition cannot possibly tilt more pro-Saudi – and certainly not more pro-MbS — than the Trump White House. And while advisors in Riyadh may caution against potentially alienating an incoming Democratic Administration should Trump lose, there is strong speculation that MbS  may find a way to work around the opposition of his father, King Salman, to signal his support to the process and in the meantime, even if on the margins, to perhaps help his ally Trump.

All of that, incidentally, may go some way in explaining the White House’s keen displeasure at the election debate committee’s decision to switch the topic of this Thursday’s debate away from its originally planned singular focus on foreign policy.


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